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Using a different PAYE code from that issued

What's the penalty for an employer using the wrong code?

Reg 21 of the Income Tax (PAYE) Regulations 2003 says that the employer must deduct tax by reference to the employee's code, even if the code is the subject of an objection or appeal. I've been asked what the penalty is if an employer uses the code the employee thinks should be used, to avoid hardship. (I'm assuming the employer knows enough about the employee to agree.) As far as I can see, there's no specific penalty relating to codes. The employer would be liable to penalties on the difference between the tax deducted and the tax that would have been deducted had the HMRC-issued code been used ie the usual "late paid" PAYE penalties. What am I missing?  

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By PBH64
13th Mar 2019 15:44

The employer can be held responsible for payment of any tax underpayment arising from the incorrect operation of PAYE. HMRC can direct that the employer pays subject to usual caveats. Deliberately changing the code wouldn't fit the caveats.

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By MJShone
13th Mar 2019 16:05

Thanks - yes - I should have said I was aware of the employer's liability to pay tax underdeducted (unless the employee/director colludes with the employer). That IS an indirect penalty of course, but what I had in mind was actual penalty penalties, if that makes sense.

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13th Mar 2019 17:37

None I hope - I regularly change codes for Mrs ALISK and I depending on various things going on in our 3 companies.

L to BR to use some SMP being claimed that month, moving allowances between companies without going through the hassle of asking/telling HMRC etc

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By MJShone
to atleastisoundknowledgable...
14th Mar 2019 09:18

The differences are that (a) your companies shouldn't have any difficulty recovering any underpaid tax from you and Mrs ALISK and (b) you know enough about you and Mrs ALISK to know what the right code should be.

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to MJShone
14th Mar 2019 09:21

MJShone wrote:

... you know enough about you and Mrs ALISK to know what the right code should be.

One would hope so. Mrs ALISK would say that that’s nearly the extent of my knowledge of her! ;(

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14th Mar 2019 11:29

I think that what you are suggesting would fall into the Inaccuracies in Returns and Documents adivorsy notes where the penalties are dependent on the Type of behavior, Unprompted disclosure or Prompted disclosure scale.

If you took Reasonable care = No penalty, Careless = 0% to 30%, Deliberate = 20% to 70%, Deliberate and Concealed = 30% to 100%.

As a keen observer it does sound like what you plan is deliberate so between 20% and 70% of the tax loss could be levied as a penalty - I am sure that you would admirably argue that you were in a much lower category though!!

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